ERISA Suit Targeting Essentia Health Retirement Plans Will Proceed

Both parties together filed some 1,000 pages of paperwork, which the court declined to consider in denying the employer's motion to dismiss, in which it argued its plan administration practices fit within established norms.

The U.S. District Court for the District of Minnesota has
tossed Essentia Health’s motion to dismiss an Employee Retirement Income
Security Act (ERISA) lawsuit accusing plan fiduciaries of various failures
related to both 401(k) and 403(b) plan administration.

Plaintiffs, in their original
complaint, suggest their employer should have allowed a single recordkeeper
to service its traditional defined contribution (DC) plan and its 403(b) plan—and
that it permitted excessive fees by paying for distinct administrative services for
each.

“Though the plans were operated as two separate entities,
this should not have diminished their combined bargaining power, as defendants
had control of both plans,” plaintiffs suggest. “A prudent fiduciary would have
offered service providers the ability to service both plans as a way to attract
their business and ultimately demand lower rates.”

Turning to the decision on the motion to dismiss, it is
important to acknowledge this is still only a preliminary step towards a
resolution. When considering a motion to dismiss under Rule 12(b)(6), courts
“look only to the facts alleged in the complaint and construe those facts in
the light most favorable to the plaintiff.” Against that standard, the court examined
the defendants’ contention that no claims are adequately stated in the compliant,
finding the various arguments wanting.

Specifically, defendants contend that plaintiffs’ claims of
breach rest solely on allegations that the plans paid more in recordkeeping
fees than what was available to a single plan of similar size, and, as the
decision states, defendants further contend that this argument “compares apples
to oranges, contains fatally flawed reasoning, and is contradicted by the
documents relied upon in the First Amended Complaint.”

NEXT: Learning from
the failed motion

One interesting fact to point out about these proceedings is
that, to argue their side of the motion, Essentia Health submitted some 639
pages of attachments to their memorandum in support of the motion to dismiss. The
documents included excerpts from annual fee disclosures sent to participants,
as well as copies of excerpts from Form 5500s and amended Form 5500s from the plans.
Not only did plaintiffs not take issue with these submissions, the court
explains, but they actually submitted their own additional 454 pages’ worth of
the attachments to the Form 5500.

However, the court more or less rebukes the parties for this
flood of additional paperwork.

“Because all of these additional documents are either
clearly embraced by the First Amended Complaint and/or available public
records, the Court could, if it chose to, consider them without converting the
present Motion to Dismiss under Rule 12(b)(6) into one for summary
judgment under Rule 56,” the decision explains. “However, the documents defendants
submitted … are submitted explicitly to refute factual allegations made in the
First Amended Complaint. To encourage this court to consider their exhibits and
make factual findings in the context of the motion presently before this court,
defendants cite Chicago Dist. Council of
Carpenters Welfare Fund v. Caremark, in which the Seventh Circuit in
reviewing a ruling on a motion to dismiss, considered contracts which had been
attached to the complaint, and the Seventh Circuit stated: To the extent that
the contracts contradict the complaint, the contracts trump the facts of
allegations presented in the complaint.”

However, Chicago Dist.
Council of Carpenters Welfare Fund, in addition to not being binding on the
Minnesota District Court ruling here, is “easily distinguishable from the present
case.”

“In that case, the contracts were attached to the complaint
itself; here, defendants are attempting to submit additional documents outside
of the First Amended Complaint to rebut and undermine factual allegations made
in the First Amended Complaint,” the decision states. “Defendants provide no
case law from within the Eighth Circuit which allows them to do so despite the
well-established standards set forth above confining Rule 12(b)(6) analysis to
facts alleged within the four corners of the complaint (or which do not
contradict the complaint), which must be taken as true.”

In light of this well-established standard, the court declined
to consider the extra exhibits submitted by both parties in conjunction with
the Rule 12(b)(6) motion to dismiss.

On the matter of whether the challenge can be time-barred
under ERISA, as defendants also argued, the court observed the following: “Although
the case presently before this court involves a duty to pay reasonable
recordkeeping fees and not a duty to evaluate retention of investments, both
duties are continuing, and the Supreme Court’s reasoning in Tibble
vs. Edisonapplies here as well.”

The full text of the complaint, including further detail on
the court’s consideration of the “separation of the duty to monitor from the
duty of prudence,” among other topics, is available here.